601-Asset Protection Planning for Mere Mortals - Part 1

Here at RPF, I strive to keep you focused continually on the Radical Personal Finance "Framework For Wealth." This is a helpful framework for you to use to organize the financial planning suggestions you are given as well as the specific actions you can take to build your wealth as you work towards financial independence.

(After all, it's action that counts. Only action leads to change. Thoughts and philosophy are nice, but you have to act.)

That Framework for Wealth is quite simple:

  1. Increase Income
  2. Decrease Expenses
  3. Invest Wisely
  4. Avoid Catastrophe
  5. Optimize Lifestyle

Today, we focus on Avoiding Catastrophe as we broach the topic of Asset Protection planning.

There are many ways we can conceive of "Asset Protection Planning." The common use of the term involves legal planning that helps to insulate various assets from the legal claims of creditors through the use of exemptions and legal entities such as corporations and trusts.

I'm fine with this being the primary use of the term. But I think it's valuable to consider the term more broadly. After all, don't you have assets that you'd like to protect that don't fit well into a Limited Liability Partnership?

I certainly do. 

I love my children. I invest a lot of money into them. I consider them to be major assets in my life. But they don't easily lend themselves to being titled into an offshore trust holding a limited partnership interest that resides in my lawyer's filing cabinet. They tend to kick and scream and holler just a bit too much for that particular staid and very conservative law office. And it freaks the janitors out just a bit when the filing cabinets are rocking all night.

So, how do I protect them?

I feed them, I clothe them, I instruct them in the way they should go, and I seek to protect them from outside danger. I keep them away from predators, I make them wear their bike helmets, I strap them into their rear-facing carseats until they're at least seven years old (or at least that's what the internet seems to want from me), and I chauffeur them around in a vehicle with a 5-star crash rating. And of course I insure them against death, disability, and disease through the use of quality nutrition and insurance policies.

Thus, I give forethought to their protection and I spend money to protect them. In that sense, I'm engaged in asset protection planning, even though no new trusts have been established and no lawyers have been engaged.

This is the very first sense in which I want you to consider the term "Asset Protection Planning."

I want you to ask these two questions:

  1. What assets do I have that I care about?
  2. From what risks should I protect those assets?

If you'll think about those questions carefully, you'll be able to coach yourself to the right solutions.

Those solutions will vary considerably.

You will:

  • Lock the doors on your house and arm your alarm system in order to protect the house and its contents from thieves.
  • Lock up your drugs, your booze, and your guns in order to protect your children from harming or killing themselves or others with those materials.
  • Buy your car and own it without any encumbering liens, title it privately (using an entity rather than your personal name), insure it properly to protect against damage and loss, lock and alarm it at all times, and vacuum and wax it regularly to maintain good resale value. 
  • Store your money in safe financial institutions, insured by the FDIC and/or otherwise protect it against fraud while simultaneously sheltering it from creditors and protecting it from the ravages of inflation.
  • Etc.

If you broaden the scope of the term "asset" and then apply yourself to imagining the various risks those assets face, you can come up with ways to protect yourself and your assets, no lawyers needed.

Start there. And then we'll tackle the lawyers and lawyerly stuff.

More in the audio from the podcast episode above.




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